TOKYO/SYDNEY, April 19 The yen edged higher in
Asia on Tuesday as more market players cut back on carry trades,
but the move will likely be short-lived as hedge funds and
Japanese life insurers positioned for the yen to resume its
slide before long.

Risky assets were hit by a double-whammy on Monday after
fears mounted that Greece will have to restructure its mountain
of debt, possibly as early as this summer, and Standard & Poor's
threatened to cut the United States' prized AAA credit rating.

The drop in Wall Street shares spilled across Asia, with
Japan's Nikkei average and Hong Kong's Hang Seng
both shedding about 1 percent as investors booked profits and
closed positions heading into the Easter holidays later this
week.

Traders and analysts said the S&P threat would likely have
little lasting impact, and even the euro's slide on worries
about Greece seemed more driven by profit-taking after the
euro's rise ran out of steam above $1.45 last week.

But the build-up of positions in risky assets -- IMM futures
speculators held near-record long positions in the Australian
dollar last week, while euro longs hit a three-year peak --
suggested that a squeeze could last for a bit longer.

"It's kind of a healthy correction. The market had bought
too much in a kind of euro euphoria," said Masafumi Yamamoto,
chief FX strategist at Barclays Capital in Tokyo.

"Events regarding the peripheral countries are used as an
excuse to take profits. It's not a restart of the euro crisis,"
Yamamoto said.

S&P slapped a negative outlook on the U.S. top-notch rating
and said there was at least a one-in-three chance that it could
eventually be cut unless the Obama administration and Congress
find a way to slash the yawning federal budget deficit within
two years.

"Discussions on the U.S. losing its AAA-status have been
active for two years, if not longer. S&P's move might have been
a jolt, but should not really be a true surprise," said David
Watt, senior currency strategist at RBC Dominion Securities.

In a classic flight to safety, the dollar jumped and
Treasury yields fell -- suggesting investors were not fretting
too much about the S&P action while looking to see if Washington
makes progress on reducing deficits.

Japan's finance minister said that he still thinks
Treasuries are an attractive investment for the world's second
biggest holder of FX reserves, totaling $1.12 trillion.

EURO EXPOSED

The euro was down slightly at 117.35 yen . The
single currency fell as low as 116.49 yen on EBS, the lowest
since March 30, on Monday before staging a late-day recovery
along with U.S. stocks.

The single currency was also little changed at $1.4220
after having skidded to a low of $1.4156 on Monday,
breaking the upward trendline of its January-April surge and
leaving it exposed to a deeper pull-back.

The dollar dipped to 82.42 yen , having fallen to a
near three-week low of 82.19. Macro hedge funds were looking to
go long the dollar around these levels, both buying spot and
picking up dollar/yen call options, traders said.

Traders also cited talk of Japanese life insurers buying
dollars to purchase Treasuries and other debt when the dollar
falls near 82. Japanese life insurers have been repeatedly cited
as dollar buyers since the greenback plunged to a record low
last month.

Meiji Yasuda, Japan's No. 3 life insurer by asset size with
$315 billion, said on Tuesday that it plans to boost foreign
bond holdings and to focus unhedged bond purchases on U.S.
bonds, saying it had confidence in U.S. Treasuries.

The 82.00 level marks a critical zone of chart support --
it's the intraday peak reached during the March 18 bout of
coordinated G7 intervention, while 81.99 is the 38.2 percent
retracement of dollar/yen's March-April surge.

Against the dollar, the euro was at $1.4230 after
sliding to a two-week low at $1.4156 on EBS. The euro's next
layer of support stems from a cluster of daily highs and lows
bunched at $1.4035/55. Further down, the 38.2 percent
retracement of the euro's January-April surge is at $1.3887.

The dollar index , which tracks the U.S. currency's
performance against a basket of major currencies, was little
changed at 75.516 after touching a two-week high of 75.810, well
off a 16-month low of 74.716 set last week.

Still, analysts said longer-term bearish views on the U.S.
dollar and the yen remained intact with both the Federal Reserve
and the Bank of Japan set to keep monetary policy ultra-loose,
maintaining their funding-currency status in carry trades.

In fact, the early threat of a downgrade may help U.S.
policy leaders to make progress on agreeing to substantial
budget cuts, said Michael Sneyd, an analyst at Societe Generale.

"All-in-all, we expect a rebound in risk once the heavy
de-leveraging has run its course, but this may take until after
the Easter break and EUR/JPY should then be the best performer."

The Australian dollar was down 0.3 percent at $1.0470
after having shed about a cent on Monday to a low of
$1.0454. But the Aussie was not far off a 29-year high of
$1.0585 set earlier this month, outperforming other currencies.

The New Zealand dollar also took a hit from the
drop in higher-yielding currencies after reaching a three-year
peak the previous day.
(Additional reporting by Masayuki Kitano and Reuters FX analyst
Rick Lloyd in Singapore; Editing by Edmund Klamann)

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